Keurig Dr Pepper Inc. KDP shares have lost 10.2% in the past three months compared with the Zacks Beverages - Soft Drinks industry’s 9.2% decline. It has also lagged the broader  Consumer Staples sector’s 4.7% decline and the S&P 500’s 6.5% rise in the said time frame.Closing at $32.04 yesterday, KDP remains below its 50-day and 200-day SMA of $35.4 and $33.52, respectively, indicating a possible sustained downward trend.

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What’s Weighing on Keurig Dr Pepper’s Performance?

Keurig Dr Pepper's struggles in the coffee segment reflect broader challenges in the at-home coffee market, which prevented the company from meeting estimates for the third quarter of 2024. Sales in the U.S. Coffee segment declined 3.6% year over year, primarily driven by a net price decrease of 6.3%, which was partially offset by a volume/mix improvement of 2.7%.

Although management expects the overall at-home coffee category trends to remain subdued, it has been strengthening the pod shipments. Like the year-to-date trends, management assumes muted at-home coffee category trends for 2024.

KDP’s challenges in the coffee segment are compounded by its announcement to acquire GHOST Beverages, an energy drink maker, which was not appeasing for investors. The company committed to paying $990 million for a 60% stake in GHOST, with plans to acquire the remaining 40% in 2028 at a price yet to be determined.

Keurig Dr Pepper's performance is further weighed down by pressures in certain still beverage categories, reflecting broader consumer softness. Categories such as ready-to-drink teas, which are heavily reliant on convenience store sales and carry a higher average price per ounce, are particularly impacted.

How Can KDP Power Through the Challenges?

KDP’s continued brand strength, with increased volume, aided performance in the third quarter of 2024. The company’s consumer-focused innovation model, supported by scorecards tracking awareness, household penetration and loyalty, has played a central role in its market share growth across key categories like liquid refreshment beverages, K-Cup pods and brewers in all major markets in the United States, Mexico and Canada.

This growth reflects a strategic mix of innovation, brand activity and strong commercial execution, bolstered by KDP’s ongoing focus on cost efficiency, productivity and disciplined capital management. in the third-quarter, the company completed the purchase and integration of new assets in Arizona, which was initiated in the previous quarter.

Keurig Dr Pepper has been experiencing steady growth in its Refreshment Beverages segment. In the third quarter of 2024, the segment saw notable year-over-year improvements, driven by increased pricing and robust growth in product volume and mix. This momentum was supported by strong sales across key product categories and a successful transition of Electrolit.

The Dr Pepper brand drove growth in carbonated soft drinks, fueled by the success of its creamy coconut summer flavor, expanded zero-sugar options and the ongoing Fansville football campaign. Canada Dry's Fruit Splash flavor, 7UP's refreshed branding and Shirley Temple flavor also gained traction on social media. The Mott’s brand, a key focus for Keurig Dr Pepper in 2024, saw strong results from its back-to-school campaign, boosting sales and market share and showcasing the impact of targeted marketing efforts.

Final Words on KDP

Shares of Keurig Dr Pepper have struggled on the bourses of late, underperforming the industry. The combination of technical weakness and fundamental pressures suggests a cautious approach. While the company faces notable challenges, particularly in its coffee segment and still beverage categories, its strengths in refreshment beverages and consumer-focused innovations offer a counterbalance. For current investors, holding onto KDP stock appears prudent. The company currently carries a Zacks Rank #3 (Hold).

Don’t Miss These Solid Bets

We highlighted some better-ranked stocks from the broader Consumer Staples space, namely Ingredion INGR, Freshpet, Inc. FRPT and Vita Coco Company COCO.

Ingredion is a solutions provider specializing in nature-based sweeteners, starches and nutrition ingredients. It currently sports a Zacks Rank #1 (Strong Buy). INGR has a trailing four-quarter earnings surprise of 9.5%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Ingredion’s current financial-year EPS indicates growth of 12.5% from the year-ago reported numbers. 

Freshpet, together with its subsidiaries, manufactures, distributes and markets natural fresh meals and treats for dogs and cats, currently carrying a Zacks Rank of 2 (Buy). FRPT delivered an earnings surprise of 144.5% in the last reported quarter.

The Zacks Consensus Estimate for Freshpet’s current fiscal year’s sales and earnings implies growth of 27.3% and 224.3%, respectively, from the year-ago reported number.

Vita Coco develops, markets and distributes coconut water products under the Vita Coco brand name in the United States, Canada, Europe, the Middle East, Africa and the Asia Pacific. The company currently has a Zacks Rank of 2. COCO has a trailing four-quarter earnings surprise of 17.6%, on average.

The Zacks Consensus Estimate for COCO’s current financial-year sales and earnings suggests growth of 3.5% and 29.7%, respectively, from the year-ago reported figures.

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